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The Department of the Treasury and the Internal Revenue Service have issued guidance for solar project developers who wish to qualify for a bonus credit through the Inflation Reduction Act (IRA) by using “domestic content.” The Department of Energy and the Department of Transportation collaborated in providing assistance for this guidance.
To be eligible for the bonus credit, projects must incorporate various American-made components such as racking, ground screws, trackers, solar panels, inverters, and energy storage systems, subject to specific requirements.
Secretary of the Treasury, Janet L. Yellen, highlighted that the domestic content bonus, as part of President Biden’s Investing in America agenda, will bolster American manufacturing, particularly in iron and steel. These tax credits play a crucial role in driving investment and ensuring widespread participation in the growth of the clean energy economy.
Projects that fulfill the domestic content criteria can receive a 10% bonus under the production tax credit (PTC) and up to a 10% bonus under the investment tax credit (ITC). To be eligible for the bonus credit, projects should either be smaller than 1 MWAC and commenced construction before January 29, 2023, or meet prevailing wage and apprenticeship requirements.
In summary, the bonus credit is available for projects that utilize domestic products and meet certain conditions, including being smaller than 1 MW or meeting specific labor-related criteria for larger-scale projects. This initiative aims to support American manufacturing while driving investment in the clean energy sector.
The bonus for domestic content is applicable to projects that meet the required thresholds of domestic-produced steel, iron, and manufactured products. To qualify as “Made-in-USA,” a product must have at least 40% of its manufacturing cost completed within the United States for projects that began construction before 2025. This percentage increases to 55% for projects starting construction after 2026. The cost of a U.S. product includes direct materials and direct labor costs associated with its production, with the actual manufacturer responsible for the manufacturing process.
For significant structural components, all steel and iron manufacturing processes must occur within the United States to receive the bonus. However, this requirement does not apply to subcomponents like nuts, bolts, screws, and clamps. Steel and iron products include racking, piles, ground screws, and rebar used in foundations.
Solar trackers, solar panels, and inverters fall under the “manufactured products” category. To qualify for the full credit amount, American-assembled solar panels must contain domestically made materials such as solar cells, frame and back rail, glass, encapsulant, backsheet, junction box, edge seals, pottants, adhesives, bus ribbons, and bypass diodes. The Solar Energy Industries Association (SEIA) suggests that partial credit amounts may be granted, pending a thorough review of the IRS materials.
In addition, domestic battery packs (including cells, packaging, thermal management system, and BMS), battery enclosures, and inverters are eligible for the bonus.
While industry stakeholders establish product standards, the Treasury Department offers a safe harbor for certain project types. The department welcomes input on product classification and is open to considering alternative approaches, including a tax-specific, technology-neutral, principles-based approach.
Abigail Ross Hopper, President and CEO of SEIA, commended the Treasury Department’s guidance, emphasizing its significance in driving investment in American-made clean energy equipment and components. The guidance aligns with the industry’s commitment to establishing a domestic clean energy supply chain, reinforcing the manufacturing renaissance ignited by the historic Inflation Reduction Act (IRA) passed in the previous year.
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